(LUXEMBOURG) - EU countries battled on Monday to assure people that they would prop up the ailing banking system and protect their savings as the financial crisis whipped through Europe.

"We will all take the necessary measures to ensure the stability of the financial system," said Jean-Claude Juncker, who heads the group of finance ministers from the 15 countries that share the euro.

"We have agreed (to assure) that no financial institution of systemic importance should be allowed to fail," he told journalists after chairing a meeting in Luxembourg, where he is both premier and finance minister.

Panic swept through the European financial sector on Monday as stock markets plunged amid growing concerns about the health of the banking system, following a series of recent state bailouts.

The European banking system slid into crisis over the last two weeks as lending on the interbank credit market all but dried up amid fears about the health of other banks' ability to repay loans.

"We will continue to provide money markets with all the liquidity they need for as long as necessary," European Central Bank President Jean-Claude Trichet said.

As interbank lending gradually slowed to a trickle over the last year, the ECB has regularly pumped billions of euros into the banking system so banks could keep financing their day-to-day business and remain solvent.

Earlier Monday, the 27 EU member countries made a joint pledge to protect individual savers and the ailing financial system, despite persisting divisions over whether a US-style bailout fund is needed.

In a first, joint European measure to restore confidence in the system, plans were under preparation to lift minimum bank deposit guarantees to as much as 100,000 euros (135,000 dollars).

Currently EU law requires member states to guarantee savers' deposits to at least 20,000 euros in case a bank goes bust, although some states offer much higher protection.

However, a growing number of states have rushed to lift the limit far above that in hope of restoring faith in the banking system, fuelling concerns about big discrepancies between European countries.

Spanish Finance Minister Pedro Solbes, as well as several diplomats, said that the European Commission would propose a sharp increase in the limit at a meeting of EU finance ministers in Luxembourg on Tuesday.

After an exchange of views between eurozone ministers on Monday night, two European officials speaking on condition of anonymity said that the proposal could call for a minimum guarantee of as much as 100,000 euros.

After Germany offered a blanket guarantee on bank deposits on Sunday, Austria, Britain, Denmark, France, Portugal, Sweden indicated they had similar plans in the works.

Ireland triggered the rush last week with a law offering an unlimited guarantee on all deposits at its biggest banks.

"We see too much variety in Europe," lamented Dutch Finance Minister Wouter Bos. "We risk a race to the bottom, or a race to the top ... I don't think that is in Europe's interest."

Ireland stirred concerns in other EU countries that savers could flock to Ireland to park their savings in its banks after it passed the law offering an unlimited state guarantee.

Economic and Financial Affairs Council (ECOFIN)

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